Corporate & Securities Law

The Conspicuousness Requirement of Texas’s “Express Negligence” Rule

By Ken Adams

I spent this morning in Toronto conducting a seminar at Rogers Communications, the Canadian communications company. David Miller, the general counsel of Rogers Communications, mentioned a requirement under Texas law that certain indemnification language be conspicuous. I’ve long been vaguely aware of that, so after the seminar I chased down further information.

The gist of it is that Texas courts have ruled that an indemnity provision that requires Party A to indemnify Party B for Party B’s own negligence is unenforceable unless (1) the contract is explicit that the indemnification covers the negligence of the indemnitee and (2) the provision in question is conspicuous.

In Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 509-11 (Tex. 1993), the Texas Supreme Court applied to the express negligence rule the Uniform Commerical Code’s standard for conspicuousness. As explained in MSCD 15.37 and in this February 2008 blog post, for something to be conspicuous under the UCC it doesn’t need to be in all capitals, so it follows that the same applies for purposes of the express negligence rule under Texas law. And using some other form of emphasis, such as bold italics, would make the provision conspicuous yet much easier to read.

The most accessible article I’ve seen on the conspicuousness requirement of the Texas express negligence rule is this one, written by Randy King, a partner at Porter & Hedges. The article was published in 2002, and there’s been some caselaw since then, but nothing that changes the basic conspicuousness analysis. A quick source of more recent caselaw is a Baylor Law Review article at 60 Baylor L. Rev. 941.

When he mentioned the Texas conspicuousness requirement in this morning’s seminar, David Miller recalled how he once found himself working on a transaction involving a Texas company. A Texas law firm had been called on to give an opinion, but they were nervous about whether a given indemnification provision-evidently one aimed at satisfying the express negligence rule-was sufficiently conspicuous. Demonstrating the expediency that is the stock in trade of the transactional lawyer, those gathered in the conference room solved this problem by using a fluourescent marker to highlight the provision in the copies to be signed …

Full post as published by AdamsDrafting on April 28, 2009 (boomark / email).